AT&T Wants a Trial by February to Determine Time Warner Merger Fate

Randall Stephenson - Time Warner News Conference - Getty - H 2017
Getty Images

On Tuesday, AT&T made its first substantive response in court to the Justice Department's attempt to block the proposed $85 billion acquisition of Time Warner. The telecom giant is now demanding a 10-day trial on or about Feb. 20.

It's a super-aggressive timetable, but if the judge permits it, under the most optimistic expectation, AT&T could just maybe beat the recently extended April deadline for effectuating the merger — assuming, that is, a verdict comes quickly after trial, it's in AT&T's favor and a potential appeal causes no trouble.

Then again, the government wants a trial to commence May 7, according to court papers.

AT&T doesn't think this is fair and thinks the Justice Department really just wants to run out the clock without having to prove its case.

"Defendants' proposed schedule will not prejudice the Government, which has had ample time already to investigate its case," AT&T's attorney tells the judge. "Further delay is unwarranted and unfair to the Defendants, their shareholders, and their customers. As the attached chronology demonstrates, the Government has already obtained substantial discovery from the parties and, indeed, has had much of it since earlier this year."

AT&T says it has already turned over 25 million pages of documents (a separate motion Tuesday aims to ensure confidentiality) and that 17 of its and Time Warner's executives have given depositions.

The defendants will, of course, want their own discovery (perhaps probing President Donald Trump's influence on the Justice Department, although that's not mentioned in Tuesday's court papers), and they want that to begin on Thursday. As AT&T envisions the timetable, both sides will disclose witnesses by the end of the year and expert reports by the first week of 2018, before fact discovery ends on Jan. 16.

As for the merits of the case, AT&T filed an answer Tuesday in court as well, and it appears as though that the new tech giants will have a special prominence in this case.

In the Nov. 20 lawsuit, the government asserted the marriage between AT&T and Time Warner would "hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s networks, and it would use its increased power to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers."

AT&T responds, "In only a few years, the way in which Americans watch television has radically and irreversibly changed. While incumbent cable companies continue to lead in the delivery of television programming to homes across the country, massive digital platforms are harnessing the power of vertical integration to bring premium video content directly to consumers’ internet-connected televisions, phones and tablets."

Represented by attorney Daniel Petrocelli at O'Melveny, the defendants point to Netflix's plans to spend $17 billion on content; the video investments from Apple, Google and Facebook; Hulu's 47 million unique viewers; Snapchat's Olympic plans; and Twitter's streaming of live NFL games. The defendants say we're living in the golden age of television.

"Against this backdrop, the proposed merger of AT&T and Time Warner is a pro- competitive, pro-consumer response to an intensely competitive and rapidly changing video marketplace," continues the AT&T brief. "Time Warner produces high-quality video content through its three operating units: Warner Brothers, HBO, and Turner. AT&T distributes video content through its satellite, broadband, and wireless networks. Simply put, no competitor will be eliminated by this merger. This transaction is therefore a classic vertical deal, combining Time Warner’s video content with AT&T’s video distribution platforms so that the merged company can compete more effectively against market-leading cable incumbents and insurgent tech giants."

Continuing, AT&T says the government hasn't bothered with establishing that the combined companies would have enough market power to harm competitors or consumers. As mentioned, President Trump doesn't come up, but nevertheless looms over everything. AT&T's court papers mention how the government didn't block the Comcast/NBCU merger, but is now departing from precedent on this particular vertical merger.

"While the merging parties cannot explain the Government’s abrupt departure from precedent, Time Warner has now extended to third-party distributors the same sort of arbitration protections that the Government embraced in Comcast/NBCUniversal," reveals Tuesday's court papers. "Specifically, contingent only upon the closing of this merger, Turner has formally and irrevocably offered its distributors licensing terms that, for seven years after closing, (i) entitle the distributor to invoke 'baseball-style' arbitration if it is unable to reach a satisfactory distribution agreement for Turner Networks and (ii) forbid Turner from “going dark” on any Turner distributor during the arbitration process."

But back to the digital giants, which may play a bigger role at the prospective trial than Trump's dislike of Time Warner subsidiary CNN.

According to AT&T's newest court filing, "Time Warner accounts for a valuable, but exceptionally thin, slice of all the video content available to consumers, and AT&T’s legacy video distribution platforms are being squeezed by cable incumbents and tech giants alike. Far from lessening competition, the vertical combination of these assets is necessary to allow the combined company to keep pace in an environment where cable is the incumbent market leader and viewer preferences are rapidly tilting towards the direct-to-consumer platforms of Netflix, Google, Amazon Prime, Facebook, Apple, Hulu, and others. In seeking to block this merger, then, the Government is not only departing from established antitrust precedent, but is also shielding rivals from new competition that would greatly benefit consumers."